Wednesday, June 10, 2015

Central banks begin unwinding flurry of Q1 rate cuts

Central banks are starting to unwind the flurry of rate cuts in the first quarter of this year as the long-awaited tightening of U.S. monetary policy grows ever closer and the dampening effect on inflation begins to wane after last year's plunge in crude oil prices.
Earlier today, the Central Bank of Iceland became the fifth central bank to raise its key rate in June, the first month in 2015 that the number of central banks' tightening policy has outpaced the number of central banks that have cut their rates.
So far this month two central banks have cut rates - India and the Dominican Republic - while Bulgaria, Trinidad & Tobago, Brazil, Kenya and now Iceland have raised rates.
Year-to-date, 36 of the 90 central banks followed by Central Bank News have eased their monetary policy stance while 17 have tightened, most in response to inflationary pressures from a depreciation of their currencies against the U.S. dollar that has firmed in expectation of rising yields.
The first quarter of 2015 was characterized by a wave of rate cuts by central banks in advanced and emerging market economies in response to disinflation from lower oil prices, sluggish economic growth and the threat of deflation.
In the first three months of this year 26 central banks worldwide cut their rates while only 11 raised their rates. The Swiss National Bank's scrapping of its cap on the franc's exchange rate against the euro in January was the major monetary policy move of the quarter along with Denmark's successful fight to defend its fixed exchange rate, Canada's rate cut, Sweden's launch of quantitative easing and two unscheduled rate cuts by India's central bank.
The second quarter has been characterized by continued easing, for example by Australia, China and India, as 16 central banks so far have eased their policy while 10 have tightened policy.
But central banks are now starting to tighten their policy in anticipation of the Federal Reserve's first rate hike, which could lead to major shifts in capital flows and thus currency instability, and accelerating inflation as the global economic recovery continues and the statistical impact of the fall in oil prices drops out of comparison. Following is an alphabetical list of countries that have changed their monetary policy this year. The list is updated and can be accessed on the Central Bank News' website under the heading of "Tighter or Easier" as soon as central banks announce changes to their policy.

Jan 8: National Bank enacts
series of measures to stabilize Belarus ruble and money markets, including
raising repo rate 500 bps to 25.00%, overnight deposit rate raised to 20%,
reserve requirement on FX cut to 12.50% and then to 10.00% in February in light
of lack of ruble funds. Pegging of Belarus ruble to FX basket resumes.

Jan. 22: Governing council
decides to launch expanded asset purchase program in March, with combined
monthly purchases of euro-area government and European institutions of 60
billion euros. Programme intended to be carried out until end of September
2016 and until "sustained adjustment in path of inflation."

GAMBIA

May 7: rediscount rate raised
100 bps to 23.00% along with more intense market operations due to persitent
inflationary pressure

Apr 29: repo rate maintained
at -0.25% but target for purchasing government bonds raised by 40-50 billion
crowns to 80-90 billion to ensure deflation doesn't return and consumer
prices continue to rise. Riksbank said prepared to make policy even more expansionary
if necessary